Farmers who faced losing state handouts for not making environmental improvements to their land have won a concession from the Government.

In a surprise announcement today Hilary Benn, the Rural Affairs Secretary, said that he had decided to make the improvement scheme voluntary. Farmers will now be free to choose how much land is left fallow to encourage the breeding of birds and provide habitats for small mammals such as voles and field mice.

Mr Benn, outlining the new policy at the Royal Agricultural Show in Warwickshire, told farmers that he expected to see a return for the trust he was placing in them. “The success of the approach is in your hands,” he said.

Some 20 per cent of England’s 110,000 farmers who receive £1.6 billion under the Common Agricultural Policy must sign up to green schemes within a year, rising to 60 per cent by 2012.

Cash penalties are likely to be imposed if farmers fail to rally to protect the environment. Mr Benn also warned that if farmers did not willingly help the recovery of bird populations he would be forced to introduce new legal powers compelling them to do so.

The new approach replaces the set-aside payment scheme, which was promoted and then scrapped by the European Commission last year as it sought to improve cereal production throughout the Continent. Britain was the only country in the European Union that sought to introduce new environmental rules once the payments were dropped.

The set-aside policy, which was intended originally to end the days of grain mountains, had the unintended consequence of assisting the development of wildlife.

Mr Benn’s decision was criticised by conservation groups, such as the Royal Society for the Protection of Birds, which had campaigned for new laws to force farmers to leave 6 per cent of their land out of production or face deductions in farm payments.

Sue Armstrong Brown, the RSPB’s head of countryside and species conservation, said: “We favoured a regulatory approach but the Government prefers a voluntary one. Clearly our job therefore is to ensure it works.

“We don’t know how farmers are going to be mobilised to make environmental improvements but it is critical they do so. If there is insufficient uptake within a year we think the Government should go for a tougher approach or we shall see a further decline in farmland birds.”

The deal follows weeks of negotiations with the National Farmers’ Union and the Country, Land and Business Association, which were resisting statutory targets to leave land out of production.

One senior Whitehall source said: “It is a shift in countryside policy from this Government. For Hilary Benn to allow farmers to take charge of the scheme is quite remarkable. It is seen as a real sign of trust in the farming industry.”

Peter Kendall, NFU president, who with his brother farms 1,500 acres of arable crops in Bedfordshire, described the outcome as “a massive victory for common sense and wildlife”.

Mr Kendall intends to campaign for farmers to adopt greener practices on the land. At his own farm he is keen to attract more skylarks. He said that one method was to leave plots of land — of about 4 by 4 metres — free of crops when drilling seed to enable birds to nest and breed.

Since the set-aside policy was dropped it is thought that English farmers have ploughed an extra 200,000 hectares, an area the size of Nottinghamshire, to take advantage of higher grain prices resulting from increased demand in China and India.

These are mainly arable farmers in the South of England and along the east coast from Yorkshire to Kent and the Midlands.

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